Liam Denning is a Bloomberg Gadfly columnist covering energy, mining and commodities. He previously was the editor of the Wall Street Journal's "Heard on the Street" column. Before that, he wrote for the Financial Times' Lex column. He has also worked as an investment banker and consultant.

In merging, Range Resources and Memorial Resource Development have thrown each other a lifeline and starving energy bankers a bone.

I wrote here about how Range's takeover of Memorial, structured as an all-stock deal, was like a disguised equity issuance to bolster the balance sheet. At $4.4 billion, it is also the largest deal between two North American exploration and production companies since Encana bought Athlon Energy for $6.8 billion in late 2014, Bloomberg data show.

It has been a long, cold 18 months in the oil and gas business since then. Strangely, M&A in the sector has also been frozen. So does Range's deal suggest a thaw is in the offing?

Chilled

Rolling 4-quarter M&A volume between North American E&P companies

Source: Bloomberg

Note: Data for 2Q 2016 through May 17.

One of the strange things about this energy crash is the relative lack of deals. Sure, going on a spending spree isn't the first thing that springs to mind when your income evaporates. Still, pooling assets can make it easier to weather the storm, and you don't have to use cash, as Range just demonstrated. Indeed, it is notable that the Encana-Athlon deal, back at the start of the crash, was paid for all in cash.

North American Deals Between E&P Firms Since Jan. 2015

$28 Billion

Large cash deals are off the table for now. In a related sector, Energy Transfer Equity is turning every which way to avoid paying the $6 billion cash element of its bid for fellow pipeline operator Williams Cos. Michelle Foss, chief energy economist at the University of Texas' Jackson School of Geosciences, sums up the problem for the E&P industry:

Any, or probably all, cash that is available in the industry is committed. Any company that has any cash with no strings attached needs that money to sustain production (whatever drilling and completions they can get done) or, for the majors, to pay dividends. Anyone with more cash available than that is paying down debt.

Even stock deals are down, though. Here's that same chart above, but this time showing the breakdown of all-cash, all-stock and mixed deals in the sector:

Paper Over

Rolling 4-quarter E&P transaction volume split by payment-type

Source: Bloomberg

Note: 2Q 2016 data are through May 17.

That brief spike in early 2015 included Noble Energy's $3.3 billion acquisition of Rosetta Resources. So why haven't other E&P companies thrown in their lot with stock-based deals?

In part, it is because one of the main advantages of an all-stock deal is also one of its biggest obstacles. Selling investors can be attracted to an all-stock deal when things are rough because it means they'll get to participate in the eventual recovery, rather than having locked in a cash price.

The flip-side, though, is that paper makes for a volatile currency, especially when a sector is in turmoil, as the E&P industry is. For example, Range's offer for Memorial was worth $15.75 a share when it was announced Monday morning but a day later hovers around $14. And the potential for gains, or losses, down the road makes sellers worried about locking in too low an exchange ratio for their stock, and vice-versa for buyers. Exxon Mobil, a likely acquirer of E&P companies, has said several times that potential targets' valuation expectations remain too high.

Still, with E&P stocks up strongly on the back of the oil rally since February, Exxon may wish it had pounced sooner. Either that, or it expects another leg down in oil prices, perhaps after the summer rally in gasoline fades.

Spring Has Sprung

Indexed price performance

Source: Bloomberg

On the other hand, perhaps the rally itself could spark more deals between E&P companies, even if the majors remain on the sidelines. At below $50 and only pennies above $2, respectively, oil and natural gas prices are still too low to splash the cash. But they have now been holding around these levels for several weeks. That alone may be enough to get E&P companies comfortable with agreeing to swap paper in the interest of survival.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.